Q2 2020 Earnings Call
[music].
Good afternoon, welcome to clear fields fiscal second quarter 2020 earnings Conference call. My name is Darryl and I will be your operator this afternoon.
Joining us for today's presentation are the company's president and CEO Jerry Barents.
CFO Dan Herzog.
Following their commentary we will open the call for questions.
I would now like to remind everyone that this call will be recorded and made available for replay will be a link in the investor Relations section of the company's website.
This call is also being webcast and accompanied by your Powerpoint presentation called the field report.
Which is also available in the Investor Relations section of the company's website.
Please note that during the course of this call management will make forward looking statements regarding future events in the future financial performance of the company.
These forward looking statements are subject to risks and uncertainties that could cause actual results could differ materially from those in the forward looking statements.
It is important to note also that the company undertakes no obligation to update such statements except as required by law.
The company cautious you to consider risk factors that could cause actual results could differ materially from those and look forward looking statements contained in today's press release feel the report and then that's conference call.
Risk factor section at Clearbridge. Most recent form 10-K filing with the Securities Exchange Commission provides descriptions of those risks.
With that I would like to turn the call over to clear field CEO Jerry Barrington. Please proceed.
Please standby for technical difficulties I do apologize.
Please standby I do apologize.
[music].
Yeah.
Thank you for standing by.
With that I will turn the call over to clear feel C. O Sherry Beranek. Please proceed.
Yeah.
Good afternoon, and thank you everyone for joining us today as you do see some of these things we just take for granted in earlier times when.
We're in a situation like this we do our best that we can show.
Thank you for your.
Thanks for sticking with us.
Yeah, Yeah, we're I, Dan and I are boyhood, <unk>, Ireland perspective homes and doing the.
[laughter] normal routine that most people are doing today wishes social just a thing work from home and the remote life that is now becoming or do the normal.
We were pleased that due to the critical role clear feel solutions clay is according the communications infrastructure clear field operations have been classified as critical sector work.
We have continued to be fully operational since the beginning of 2020.
Right the unprecedented global business closures and slowdown caused by cold that 19.
We continue with production operations in both the U.S. and Mexican manufacturing facilities.
Have established multiple contingency plans in the that our ability to operate would be diminished, whereas eliminated had either location.
As of today, our employees are healthy and we have no reported cobot 19 cases.
However, this of course can change at any time.
The second quarter was a strong period for quick scale as we achieved the highest level of revenue for any fiscal Q2, and our company's history at 20.4 million, which was up 5% sequentially and 70% year over year. This trajectory is consistent with our expectation is it was driven by strong.
Contributions from our national carrier, and MISO market, which were up 66% and 75% year over year respectfully.
In terms of deficiency, we realized another quarter of solid gross profit margin at nearly 40%, which is the highest level and each quarters.
This achievement reflects the success of the operational efficiency initiatives that we've implemented across the organization over the last six months, particularly the cost reduction efforts across our product line and the expanded use of our Mexico manufacturing plant.
How about production standpoint, we too so I healthy increase in our order backlog in the second quarter, which increased 61% sequentially and 62% from the same year ago period to $9.3 million.
For the most part we continue to look at industry, leading lead times for standard products.
Now before I turn the call over to our CFO down her talk to discuss our financial performance in more detail I'd like to spend a moment reviewing some of our recent operational updates and market Crocker.
Although colby nike's impact be yet to deepen in March 2020 here in United States, We did not experience any particular customer ordering delays or changes in ordering patterns.
Looking at our market segments by revenue more closely starting with our core community broadband market.
Yeah. This second quarter, we generated revenue of $12.2 million, which was consistent with the same period last year.
On a trailing 12 month basis ended March 31st 2020 community broadband market revenue totaled 52.2 million, which was down 3% from the comparable period last year.
Our national carrier business with our second largest market comprising 90% of total revenue in Q2 is 17% of our total revenue for the trailing 12 month period.
From a growth standpoint, we've built on the momentum we established over the last several quarters, realizing a 66% year over year increase in revenue to $3.9 million in the second pure second quarter, and a 46% year over year increased to $14.3 million for the trailing 12 month period.
As I spoke to on the Q1 field report the primary factor driving this growth is the continued demand for fiber to the home and fiber to the business application.
We believe the momentum in our national carrier market to date validates the strategic investments, we've made to capitalize on the tier one market, including the five GE opportunity.
In addition to the positive results, we experienced international carrier market, we realized that another quarter of double digit growth in our M.S., though or cable TV market.
In fiscal Q2, we generated $2.6 million revenue, which was up 75% year over year and generated $9.9 million for the trailing 12 month period, which was up 23% year over year.
Revenue in our international market was down 51% year over year end down 25%, a trailing 12 month basis. The decline was primarily due to delayed orders that we expect to recognize later in the fiscal year.
Revenue in our legacy build to print business was down 39% in the second quarter and down 8% over the trailing 12 month period.
On a trailing 12 month basis total revenue was $4.2 million, which is consistent with our expectations for this business to operate at approximately $4 million, an annual run rate for the foreseeable future.
With that I'll now turn the presentation over to Dan will walk us through our financial performance for the second quarter fiscal 2020.
Thank you Gerry and good afternoon, everyone.
Now looking at our second quarter financial results in more detail.
Our revenue in the second quarter fiscal 2020 increased 7% to $20.4 million from $19.1 million in the same year ago period.
The increase in revenue was primarily due to higher shield in our tier one of them a sole markets offset by lower international sales as Sheri mentioned.
Gross profit for the second quarter fiscal 2020 totaled $8.2 million worth 39.9% of total revenue.
He was an improvement from 7 million or 36.8% of total revenue in the second quarter of fiscal 2019.
Increasing gross profit dollars was due to increased sales volume while the increase in gross profit percent was due to cost reduction efforts across our product lines, including expanded use of our Mexico manufacturing plant efficiencies realized from our supply chain programs.
Our operating expenses for the second quarter fiscal 2020 were $7.4 million, which were up from $6.7 million in the senior go quarter.
As a percentage of total revenue operating expenses in Q2 were 36.4% compared to 35.3% in the same year ago period.
The increase in operating expenses was primarily due to increased compensation costs and the costs associated with product testing required for tier one certification.
Income from operations was $720000 in the second quarter fiscal 2020 in comparison to $297000 in the same your go quarter.
Income tax expense increased from $99000 in the second quarter of 2019 to $190000 in the second quarter fiscal 2020.
In the second quarter fiscal 2020, net income totaled $748000 or five cents per diluted share.
Which is an improvement from $368000 or two cents per diluted share the same year ago quarter.
During the second quarter, our cash cash equivalents and investments increased $1.6 million to 40.8.
$48.4 million from $46.8 million in the prior quarter ended December 31, 2019th.
It's worth noting that our excess cash is invested mainly in Cds back by the FDIC U.S. Treasury securities and money market accounts, which are secure in highly liquid.
Leave our existing cash and short term investments along with cash flow from operations is sufficient to meet our working capital investment requirements for beyond the next 12 months.
During the quarter, we repurchased 41796 shares of our common stock for an aggregate value of approximately $429000.
Our board and management team will continue to evaluate how we deploy our capital to generate the highest returns for our shareholders.
To further ensure our financial stability. During these uncertain times, we have suspended our share repurchase plan.
That concludes my prepared remarks, I will now turn the call back over to Sherri Jerry.
Thanks, Dan.
Over the last two years, we've been executing on our coming of age plan, which is our three year strategic plan designed to strengthen our core business and position our company for a disruptive growth opportunities specifically around fiveg.
As our financial and operational performance in Q2 demonstrated we're now starting to realize the results of this plan.
I'll spend a moment, providing a brief update on our three major initiatives within it.
In terms of our first initiative expanding our core community broadband business, we're seeing emerging opportunities, but utilities and which we expect our unique modular architecture will help us capitalize on these opportunities and grow our share in this market.
Further we expect to be successful in working with service providers, who will benefit from the expanded funding programs for broadband deployment sponsored by the federal government.
In terms of our progress enhancing our operational effectiveness our success in this area with most clearly demonstrated by the 40% gross profit margin we realized in the poor.
In addition to benefiting from the cost reduction efforts across the product lines as Dan mentioned, we're continually looking for ways to improve our manufacturing capabilities the supply chain efficiencies.
During Q2, we signed a lease for a second manufacturing facility in Mexico, which has doubled or square footage and allows us to establish lean manufacturing initiatives by dedicating one facility to get activity and the other displacing operations associated with our enclosures.
The covert 19 impact in Mexico caused temporary delays and our ability to begin shipping product from the facility, but did not significantly impacted the glad level of revenue shipped this quarter.
Based on their current assessment, we believe we can commence shifting from that facility in the coming weeks.
In terms of our competitive position, we recently introduced home deployment kits, which are designed to ease the task of fiber to the home deployment and reduced install time by approximately 30 minutes per home.
In addition, these products can be installed directly by the homeowner within their own structure, providing for a contact free installation.
The third initiative of our plan involves capitalizing on our fiveg opportunities within the wireline markets of national carriers, and all wireless markets.
In the second quarter, we introduced to the street smart portfolio fiber management products to support Fiveg small cell densification.
Serving as the demarcation point between the backhaul fiber provider and the mobile network operators. The street smart fiber handoff box creates a secure carrier class separation between the wireline and wireless fiber connection.
From our vantage point, including conversations with customers and other industry participants over the last several weeks Fived you built I still committed and we've even seen some tier one players increase their fiveg related capex budget for this year. Despite the covert 19 uncertainties.
In response to the change the landscape created by the Cold that 19 pandemic. We're still has instituted multiple excuse me yeah. That's so much for being able to work from home.
We are still has instituted multiple policies to protect the safety of our employees to adapt to new trends and the global workforce and to assure the long term viability remains intact.
I'm also encouraged to report that there had been no way off all Nonproduction employees are able to do their jobs remotely and that our production operations are working at normal capacity well its hearing to state and federal government guidelines.
As we move through the fiscal third quarter are not production employees are all working remotely we are actively promoting and demonstrating our products solutions to video conferencing and other methods.
We do sourced majority of our components and as of now most of our supply chain partners remain operational and have continued to provide the necessary component as for our products.
We've increased our stocking position in each class to assure dual manufacturing sites, we have invested an additional manufacturing equipment and personnel to provide alternative capacity on one location or the other should we have an illness breakout in one or both of our production sites.
We are providing hazard pay and productivity bonuses and have re laid out our plant floor to allow for social distancing.
In addition, we've established a cold the task force among the production workforce to ensure all health major being addressed.
However, these are highly uncertain times, an epidemic will undoubtedly create circumstances beyond our immediate control.
Our contingency plans may not be sufficient to meet customer customer demand and they could result in a potentially significant increase in manufacturing cost.
Due to these economic insert uncertainties, we received a 3.7 million dollar loan under the payroll protection program under the within the Corona virus, It really an economic security or cares Act.
The loan bears interest at a fixed rate of 1% and will be forgive the nuclear field meets certain conditions.
The P.P.B. Lowe and provides us with an additional layer of financial protection of continuing to employ Oliver team members throughout this period of significant uncertainty.
As we moved through the fiscal third quarter, our business remains strong with production currently stable and operational we believe we have the right plan and foundation in place to ensure we successfully navigate these unchartered waters backed by our nearly $50 million and cash and investments industry, leading solutions in a world class.
Team.
We remain confident these factors will enable us to capitalize on the destructive growth opportunities with in the fiber optics industry, both in the near term and long term as well.
I'm very proud of our team.
I came a seamlessly adapter todays dynamic working environment, we've built a highly resilient business as evidenced by a strong results in Q2 as well as our ability to continue supporting the critical needs of our customers. During a time that is challenging for many businesses regardless of industry.
As of today glucose business remains strong with bookings in the fiscal third quarter of 2020 outpacing the levels realized in the fiscal second quarter or 20 Twond.
However, the lack of visibility in the broader global markets and intensifying demand uncertainty could potentially disruptive clearfield supply chain and customer ordering patterns as well as reduce the overall demand for its products in the near term.
Recognizing this reality clear leadership team in board of directors believe it it's prudent to necessary to temporarily withdraw the company's fiscal 2020 financial guidance until such time that visibility returns to Creek cobot 19 levels.
And with that we're ready to open the call for your questions operator, I turn it to you.
Thank you we will now be taking questions from the company's publishing sell side analysts.
That's just if you would like to ask your question. Please press star one on your telephone keypad for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
Confirmation total indicate your line is in the question Q.
You May press star too if you would like to remove yourself from the Q.
One moment, please while we poll for your questions.
As a reminder.
He would like to ask your question. Please press star one on your telephone keypad.
The confirmation told will indicate your line is in the question Q.
You May press star to appeal would like to remove yourself from the Q.
One moment, please or we pull for your questions.
Our first questions come from the line of Tim Savageaux of Northland Capital markets. Please proceed with your questions.
Hi, This is actually Steven on for Tim I was wondering if you could give us any color on what drove the increase in backlog.
[laughter] be a couple of things, yeah, increasing backlog with a lot more orders and a lot more orders in and the tail end of the quarter in March.
Yeah. The the backlog is driven across the company that's a in community broadband M.S., so as well as in the carrier business.
I am a we didn't quite have the or some of the came a little bit late in the month of March and some of that was affected <unk> associated with what we're doing in.
In Mexico in that the Cobiz virus I didn't allow us to open up the second plant because it gets construction team that was dedicated to work like a call to Mexican federal project, but its its long term consistent overall business.
Okay. Thanks, that's it that's great and then can you just but wasn't.
Is there the traffic increases due to be a pandemic I was positively impacting your business or are you pushing anything else.
When you say traffic broadband traffic.
Yes, correct right. Yeah, I think were we're certainly seeing a level of high interest from our service provider customers, who knows their customers are asking for certain service turn up and I think there's no better time right now.
Two debts to demonstrate just how crucial broadband connectivity is b M and how much it drives our day to day lives I think we're seeing a little bit uptick in second quarter, but not a lot in that that's still kind of in front of that's a we're seeing our service providers see a level of take rates that they haven't previously seen because people.
You don't need it and are demonstrating through it. So I think it's both a short term and long term opportunity for us and that because of the recognition of those are the success of well what that delivers.
That's great. Thank you so much.
Yes, very welcome.
As a reminder, if he would like to ask your question. Please press star one on your telephone keypad.
Confirmation its own will indicate your and the question Q1 moment. Please while we poll for questions.
I'd now like to turn the call back to CEO Sherry Baronet for her closing comments.
Thank you everyone. I appreciate you joining us today, the or do we as a company traditionally take questions from our covering analysts B M. If you have a question that has not been addressed in two days.
Information, please feel free to reach out to us the m. by sending an email to myself personally the which you see beranek I feel that the dot com Orchard, where our firm which is IR at a gateway dotcom.
I asked you to stay safe wash your hands, the and social different thing is not a choice. It's a requirement. Thanks very much like right now.
Mike.
Thank you for joining us today for Clearfield fiscal second quarter 2020 earnings Conference call you may now disconnect.